13TH Month Pay, Christmas and Other Bonuses Issues on TaxationAtty Elvin
13th month pay, as a general rule, is not subject to tax. This is clear under Section 32B, Chapter VI of Republic Act (R.A.) No. 8424, otherwise known as the National Internal Revenue Code which exempts from tax the 13th month pay and other benefits.
This discussion on 13th month pay is based on the books Tax Solutions on Employee Compensation and Benefits and Employee Compensation and Benefits Volume 2, Second Edition by Atty. Elvin B. Villanueva.
Likewise, the Christmas Bonus and other bonuses in the nature of productivity incentive and the like are exempted from tax as long as they do not exceed the P82,000.00 limit.
Hence, assuming X is given the following per mandate of the law and in the spirit of Christmas:
- 13th month pay of P20,000.00
- Christmas Bonus of P20,000.00
- Productivity Bonus of P20,000.00
The total of which is P60,000.00 the employee is not subject to tax considering that it is still below the P82,000.00 ceiling.
However, if the employer provides additional performance bonus of P30,000.00, making it a total of P90,000.00 then P8,000.00 shall be taxable being in excess of the P82,000.00 limit (P90,000.00 – P82,000.00 = P8,000.00).
Tax rate for the excess of P8,000.00 will depend on whether the employee is rank-and-file or supervisory/managerial. If rank-and-file it will be taxed as compensation under Section 24 of the NIRC (schedular table).
If the employee is supervisory/managerial, it may be considered as fringe benefit subject to tax of 32%. The tax for fringe benefit is usually grossed up by dividing the amount by 68%.
P8,000.00 / 68% = P11,764.71
The tax of which is P11,764.71 x 32% =P3,764.71
As to rank-and-file, the excess in 13th month pay and other benefits will be taxed based on the rate in the schedule/table considering that this will be annualized and treated along with other income during the taxable year.
It is worth noting that minimum wage earners are not subject to tax on their basic wage, holiday pay, overtime pay, night shift differential pay, and hazard pay.